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FIRST NATL. BANK OF CHICAGO v. ACCO USA

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION


December 30, 1993

THE FIRST NATIONAL BANK OF CHICAGO AS TRUSTEE OF THE INSTITUTIONAL REAL ESTATE FUND F, et al., Plaintiffs,
v.
ACCO USA, INC.-IBT RETIREMENT PLAN, et al., Defendants.

Zagel

The opinion of the court was delivered by: JAMES B. ZAGEL

MEMORANDUM OPINION AND ORDER

This case emanates from First National Bank of Chicago's ("the Bank") attempt to satisfy matured redemption requests from its Institutional Real Estate Fund F ("Fund F") by distributing, to the withdrawing participant plans, cash and quitclaim deeds to undivided fractional interests in each of the Fund F real estate parcels. *fn1" The defendant plans rejected the proposed distribution in early 1993. The Bank subsequently filed a complaint for injunctive and declaratory relief, compelling each of the defendant plans to accept their fractional shares of Fund F real property, and directing the Trustee to manage the refused fractional shares under the terms of the Trust Instrument during the pendency of this litigation.

 The defendants move to dismiss the complaint initially for failure to state a claim pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6) and ultimately for lack of subject matter jurisdiction pursuant to Rule 12(b)(1). *fn2" For the reasons set forth below, the defendants' motion to dismiss Counts I and III is denied, and the motion to dismiss Count II is granted.

 Count I of the Bank's complaint is entitled "Breach of the Trust Instrument [and] the Comptroller'S Regulations and Violation of ERISA." Specifically, the Bank says that: 29 U.S.C. § 1105(a) makes the Bank a co-fiduciary of each of the defendant plans; 29 U.S.C. § 1104(a)(1)(D) requires fiduciaries to discharge their duties "in accordance with the documents and instruments governing the plan[s]"; "12 C.F.R. § 9.18(b)(6), as interpreted by the Comptroller and upheld by the Seventh Circuit, requires that in kind distribution be made by means of the grant of undivided fractional interests in each of the [Fund F] properties"; and, in rejecting the quitclaim deeds to undivided fractional interests, the defendants breached the Trust Instrument and their fiduciary duties in violation of § 1104(a)(1)(D).

 Count II states that the Bank, as Trustee, advised the defendants that they were required by law to accept the proposed distribution and that their refusal would be interpreted as a direction to maintain the fractional interests in Fund F until ordered otherwise by the court. The Bank requests a judgment against each defendant plan, declaring that the rejected fractional interests remain in Fund F and that the Bank, as Trustee, retains its full powers and protection under the Trust agreement until the Court orders otherwise. *fn3"

 The defendants urge that the entire complaint must be dismissed as moot because there is no justiciable case or controversy in Article III terms and, therefore, this Court has no federal jurisdiction. The defendants argue that the case or controversy between the parties ceased to exist once the Bank decided to terminate Fund F and liquidate its properties pursuant to the Termination plan. By letter dated April 29, 1993, the Bank advised the OCC of its intent to terminate Fund F and attached a copy of the Termination Plan. *fn4" Under the Plan, the Bank as trustee will establish a "Fund F Liquidating Account" of Fund F assets (excluding the Redeemed Former Participants' rejected fractional interests), will sell all Fund F properties "as soon as feasible and prudent," and will periodically and ratably distribute cash available after expenses, including budgeted capital improvements and operation costs. With respect to "The Refused Fractional Interests of the Redeemed Former Participants," the Termination Plan provides as follows:

 

The Trustee's Termination Plan does not and should not be understood to operate[,] to affect or override the claims, if any, of any Redeemed Former Participant. As noted above on January 15, 1993, the Trustee made a ratable distribution of cash and fractional interests in property to the Redeemed Former Participants. The Trustee asked each Redeemed Former Participant to confirm that pending resolution of the distribution by a court or otherwise the Trustee is empowered to deal with the refused fractional interests of the Redeemed Former Participants under the same terms as the Trust Instrument. Confirmation was received from each redeemed Former Participant. Consequently, pending resolution by a court or otherwise, the Trustee continues to retain the power and duties to administer the refused fractional interests of the Redeemed Former Participants in accordance with the terms of the Trust Instrument. The Trustee will administer the fractional interests refused by the Redeemed Former Participants within an "Interim Liquidation Account." The Trustee intends to jointly manage the Interim Liquidation Account and the Fund F Liquidating Account for sale purposes and for other necessary investment decisions until such time as the distribution of the rejected fractional interests is resolved by a court or otherwise. (Emphasis added.)

 "Mootness can kill a lawsuit at any stage." Steffel v. Thompson, 415 U.S. 452, 459 n. 10, 39 L. Ed. 2d 505, 94 S. Ct. 1209 (1974). A case becomes moot "'when the issues presented are no longer "live" or the parties lack a legally cognizable interest in the outcome.'" Murphy v. Hunt, 455 U.S. 478, 481, 71 L. Ed. 2d 353, 102 S. Ct. 1181 (1982). *fn5" To test for mootness, a court must ask whether "the relief sought, if granted, would make a difference to the legal interests of the parties (as distinct from their psyches, which might remain deeply engaged with the merits of the litigation)." Air Line Pilots Ass'n Int'l v. UAL Corp., 897 F.2d 1394, 1396 (7th Cir. 1990). As Judge Posner noted in Air Line Pilots, the mootness test functions on a continuum, and:

 

it is usually possible to conjure up a set of facts under which the relief sought would make a difference to the parties. But if it would be a very little difference, then to economize on judicial resources as well as to give expression to policies thought inherent in Article III the case will be declared moot and relief withheld.

 Id. at 1396-97.

 The Bank insists that the case is not moot. It argues that the declaration (sought in Count II) will resolve a present dispute over the legal basis for the Trustee's continuing powers over the refused fractional interests and the Trustee's ability to deduct its fees. The complaint, however, mentions nothing about a dispute over Trustee fees, and a "live" controversy only exists if the Trustee's exercise of power is contested, regardless of the legal basis for that exercise. See Air Line Pilots, 897 F.2d at 1397 (the mootness criterion seems to imply that "it can make little difference whether a practice is unlawful for one or for several reasons, provided only that it is indeed unlawful"). The Termination Plan acknowledges (and the defendants agree) that the defendants do not contest the Bank's exercise of power as trustee over the refused fractional interests under the terms of the Trust Instrument. Furthermore, the declaration sought in Count II is embodied in the Termination Plan. The Termination Plan provides that the fractional interests in Fund F properties rejected by the defendants remain subject to the terms of the Trust Instrument and, consequently, the Bank as trustee retains the power and duties to administer these assets under the Trust Instrument. This Court "is not empowered to decide moot questions, or abstract propositions, or to declare, for the government of future cases, principles or rules of law which cannot affect the result as to the thing in issue in the case before it." California v. San Pablo & T. R. Co., 149 U.S. 308, 314, 37 L. Ed. 747, 13 S. Ct. 876 (1893). Count II, therefore, is dismissed as moot.

 The question still remains whether the Bank's resolution to terminate Fund F and sell its assets, including the refused fractional interests in the "Interim Liquidation Account," moots the ERISA claims in Count I (assuming, of course, the claims were pleaded properly). According to the defendants, the Bank's Termination Plan has made it unnecessary and factually impossible for this Court to issue an injunction compelling the defendants to accept the proposed fractional interests in Fund F real estate. The Bank, however, maintains that the defendants' "illegal acts" in refusing the distribution of fractional interests gave rise to an actual controversy; these acts constituted a breach of ERISA and the Trust Instrument, and this lawsuit is a reasonable effort to remedy those breaches. The Bank also insists that the Termination Plan does not render the complaint moot because there still remain approximately 40 properties that have not been sold and a decision by this Court will "make a difference to the legal interests of the parties."

 It is not difficult to envision how an injunction compelling the defendants to accept fractional interests in property would make a difference to the parties. The Termination Plan provides that unless a court determines otherwise, the fractional interests will remain in the "Interim Liquidation Account" until sold. If this Court grants the injunction, the defendants legally will be entitled to the fractional interests (which the Bank undoubtedly will tender) instead of a ratable share in cash after expenses under the Termination Plan. Whether dismissal of Count I is proper, however, depends on where, along Posner's "mootness continuum," this case falls. This depends on the essence of the ERISA claims and whether the "difference" resulting from the injunction will be so little that judicial economy and the policies underlying Article III dictate dismissal of Count I as moot.

 The defendants urge that Count I: (1) impermissibly seeks an advisory opinion regarding the Bank's exercise of its fiduciary duty in satisfying the withdrawal requests; (2) fails to state a claim against the defendants for breach of a fiduciary duty under ERISA; and (3) cannot state a claim for violation of OCC regulations. They contend the Bank actually seeks a preliminary approval of its redemption scheme (approval which the OCC refused to give) and, in effect, a declaration of nonliability for any future alleged breach of the Bank's fiduciary duties in satisfying the matured withdrawal requests. Although the history of this case makes it more likely than not that the Bank filed suit with this motive in mind, this Court still must ask whether the Bank has stated a federal cause of action so that this Court can exercise jurisdiction over the matter.

 The Bank alleges in its complaint that subject matter jurisdiction (except as to the State Board and Illinois Municipal Retirement Fund) is predicated on 29 U.S.C. §§ 1104 and 1105, 28 U.S.C. § 2201, and 28 U.S.C. § 1331. The defendants correctly point out that none of these statutory sections provide a federal private cause of action. Sections 1104 and 1105 define a fiduciary's standard of care and duty to police breaches by co-fiduciaries. Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 145-48, 87 L. Ed. 2d 96, 105 S. Ct. 3085 (1985) (ERISA's fiduciary duty provisions do not give rise to an implied right of action beyond those created in § 1132). Section 2201 is the Declaratory Judgment Act which only affords an additional form of relief and does not confer subject matter jurisdiction. Lawline v. American Bar Ass'n, 956 F.2d 1378, 1387 (7th Cir. 1992). Finally, section 1331 simply declares that claims arising under federal law may be brought in federal court without regard to the citizenship of the parties or the amount in controversy. 28 U.S.C. § 1331 (1991). *fn6"

 This Court can exercise subject matter jurisdiction here if the complaint states a claim under ERISA. 29 U.S.C. § 1132(e)(1) (1988). Section 1132 provides the exclusive mechanism for civil enforcement of ERISA's substantive obligations. 29 U.S.C. § 1132(a) (1988); Russell, 473 U.S. at 145-58; Giardono v. Jones, 867 F.2d 409, 413 (7th Cir. 1989). The Bank's failure to cite § 1132 in its complaint is not fatal to its ability to assert a private cause of action under ERISA. The common law "form of action" pleading and code pleading were abandoned long ago in favor of a "new, latitudinarian approach." Bartholet v. Reishauer A. G., 953 F.2d 1073, 1078 (7th Cir. 1992). Today a complaint filed in federal court need not identify the appropriate statute or even the appropriate legal theory to survive a motion to dismiss. Id. Instead what it must do is plead a "claim for relief," and what this Court must determine is "whether relief is possible under any set of facts that could be established consistent with the allegations" in the complaint. Id. In turn, this Court must accept as true all well-pleaded factual allegations in the complaint, along with all reasonable inferences drawn in favor of the plaintiff, and dismiss the complaint only if it is beyond doubt that the Bank can prove no set of facts in support of its ERISA claims that will entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957).

  The Bank, as a fiduciary, can bring a claim under sections 1132(a)(2) and 1132(a)(3). Section 1132(a)(2) provides a cause of action for "appropriate relief under section 1109," i.e., liability for breach of fiduciary duty. Suits for breach of fiduciary duty are permitted only against persons who act as a fiduciary with respect to a plan or trust covered by ERISA. Brandt v. Grounds, 687 F.2d 895, 897 (7th Cir. 1982) (quoting 29 C.F.R. § 2509.75-8 (FR-16A)). A person acts as a fiduciary "to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or respecting management or disposition of its assets, . . . or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan." 29 U.S.C. § 1002(21)(A) (1988). In essence, "ERISA makes the existence of discretion a sine qua non of fiduciary duty." Pohl v. National Benefits Consultants, Inc., 956 F.2d 126, 129 (7th Cir. 1992); Associates in Adolescent Psychiatry, S.C. v. Home Life Ins. Co., 941 F.2d 561, 568-69 (7th Cir. 1991); Leigh v. Engle, 727 F.2d 113, 133 (7th Cir. 1984) (fiduciary obligation is limited to extent of actual authority) (quoting ERISA Interpretative Bulletin 75-8, 29 C.F.R. § 2509.75-8).

 Whether a person (or entity in this case) qualifies as a fiduciary within the meaning of ERISA is a question of law. United Indep. Flight Officers, Inc. v. United Air Lines, Inc., 756 F.2d 1262, 1266 n.6 (7th Cir. 1985). The defendant plans argue that they have no discretion to manage, control, or dispose of Fund F assets and, therefore, neither qualify as "fiduciaries" nor have any fiduciary duty with respect to Fund F assets under 29 U.S.C. §§ 1104(a)(1)(D) and 1002(21). The Ninth Circuit in Acosta v. Pacific Enters., 950 F.2d 611 (9th Cir. 1992), held that a plan (as an entity) cannot be sued for breach of fiduciary duty because it cannot, as an entity, act as a fiduciary with respect to its own assets. Id. at 618. *fn7" While it is difficult to envision a situation in which a plan (not its administrators) could act as a fiduciary, this Court need not decide whether a plan can or cannot act as a fiduciary within the meaning of ERISA. *fn8" Even assuming a plan can act as a fiduciary, I find that the defendant plans in this case are not fiduciaries with respect to the management, control or administration of Fund F assets. The Trust Instrument vests the Bank with exclusive power to manage and control Fund F assets. The defendant plans, having no discretion to manage and control Fund F assets, have no fiduciary obligation with respect to the management and control of Fund F assets.

 The Bank still insists that the Trust Instrument and OCC regulations impose a duty on the defendants to accept the proposed fractional interests in Fund F real property. Implicitly, the Bank argues that the defendant plans, which includes its administrators, *fn9" are fiduciaries by virtue of its discretion to administer, manage, and control their respective plans and that the plan administrators breached their fiduciary duty under § 1104 by not administering the plan "in accordance with the documents and instruments governing the plan." 29 U.S.C. § 1104(a)(1) (1988). Even if the plans are fiduciaries with respect to the administration or management of their plans, their obligations as fiduciaries "pertain[] only to the discretion thus created." Associates in Adolescent Psychiatry, 941 F.2d at 569. The Bank contends that the plans had no discretion to reject the proposed distribution and must accept the fractional interests. If such a duty to accept the fractional interests exists, it is contractual or regulatory and not "fiduciary." The Bank, therefore, has not properly pleaded a claim for breach of fiduciary duty under § 1132(a)(2).

 Essentially, what the Bank argues is not that it states a claim under § 1132(a)(2), but that it states a claim under § 1132(a)(3). Under this subsection, fiduciaries can sue "(A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan." 29 U.S.C. § 1132(a)(3) (1988). Section l132(d)(1) specifically provides that an employee benefit plan may be sued as an entity under this subchapter, and the viability of a suit under § 1132(a)(2) does not depend on the defendants' status as fiduciaries. Winstead v. J. C. Penney Co., Inc., 933 F.2d 576, 579 (7th Cir. 1991). Furthermore, this section permits a fiduciary to enforce what it considers to be "the requirements of ERISA and the agreement of the parties formulated in the Plan itself." Saramar Aluminum Co. v. Pension Plan for Employees of the Aluminum Indus. & Allied Indus., 782 F.2d 577, 581 (6th Cir. 1986); *fn10" Winstead, 933 F.2d at 579 (complaint stated a claim under § 1132(a)(3)(B) for a declaratory judgment to enforce the coordination-of-benefits provision of the Central States plan).

 The Bank here has filed suit to enforce what it considers to be the requirements of the Trust Instrument and OCC regulations. The Trust Instrument and OCC regulations are incorporated into each participating ERISA plan. A suit to enforce the Trust Instrument and OCC regulations, therefore, is a suit to enforce the terms of the ERISA plans themselves. Accordingly, this suit falls squarely within the literal terms of 29 U.S.C. § 1132(a)(3), and this Court has exclusive jurisdiction over the matter under 29 U.S.C. § 1132(e)(1). The exercise of subject matter jurisdiction over this case would promote the "goals of ERISA and, more broadly, [] facilitate the expeditious and economical administration of justice." Winstead, 933 F.2d at 579. The defendant plans' motion to dismiss Count I (and Count III) as moot or for failure to state a claim is denied. *fn11"

  Finally, the defendants insist that if any claim survives their motions to dismiss, this Court should order the Bank pursuant to Rule 19(a) to join the non-withdrawing plans whose interests will be affected by the distribution of fractional shares in the real estate held by Fund F. Joinder of the non-withdrawing plans is feasible. The dispute here concerns whether joinder is necessary because the non-withdrawing plans have "an interest relating to the subject of the action and . . . the disposition of the action in their absence may [] as a practical matter impair or impede their ability to protect that interest." FED. R. CIV. P. 19(a). This interest must be a "legally protected interest [in the subject of the action], and not merely a financial interest or interest of convenience." 3A MOORE'S FEDERAL PRACTICE P 19.07[2], at 19-99 (2d ed. 1992).

 In a sense, the non-withdrawing plans have a financial interest in the outcome of this litigation; the Bank wants an injunction ordering distribution of fractional interests in Fund F real estate held in trust for the benefit of all participating plans. This interest in Fund F real estate, likewise, is legally cognizable by virtue of the Trust Instrument, just as the interest of parties to a contract involving land. See Naartex Consulting Corp. v. Watt, 232 U.S. App. D.C. 293, 722 F.2d 779, 788 (D.C. Cir. 1983) ("an action seeking rescission of a contract must be dismissed unless all parties to the contract, and others having a substantial interest in it, can be joined"). The difficulty in this case is that the "subject" of this action does not encompass all Fund F real estate, rather only those fractional interests in real estate rejected and now held in the "Interim Liquidation Account" pursuant to the Termination Plan. The non-withdrawing plans have a legally cognizable interest only in the Fund F real estate being held in the "Fund F Liquidating Account," which excludes "the Redeemed Former Participants' rejected fractional interests" and which is being sold "as soon as feasible and prudent" with periodical and ratable distributions of cash available after expenses. Accordingly, this Court finds that the non-withdrawing participants need not be joined under Rule 19(a). *fn12"

 In sum, the motion to dismiss Counts I and III is denied. Count II is dismissed as moot. The State Board's motion to dismiss is granted. Finally, the defendants' request for an order requiring joinder of the non-withdrawing plans as defendants is denied.

 Enter:

 James B. Zagel

 United States District Judge

 Date: 30 Dec. 1993


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